Davos 2013: British companies show 'lack of ambition'

UK companies are punching below their weight when it comes to exporting to the
world's growth economies because of a lack of ambition, foresight and a
tendency to try and replicate success in domestic markets which proves
inappropriate overseas, according to a new report from Deloitte.

At the moment these 20 growth markets account for only 16pc of the UK's trade while the US and Europe remain its main trading partners.Photo: AFP

However, UK companies are well placed to take advantage of economic and social trends in the fastest growing economies as demand for more sophisticated, knowledge-based goods and services grows, the report, unveiled at Davos, concludes.

Markets such as Turkey, Mexico, Columbia and Vietnam are witnessing rapid urbanisation and growth in their aspiring middle classes which means the current failure of UK exporters to penetrate these markets will change.

David Sproul, Deloitte UK chief executive, said: "If you look at where exports from mature markets into growth markets have come from so far they have been in areas such as infrastructure, transport and physical assets. The UK is not a particularly big player in those parts of a growing economy but is a big player in knowledge-based goods and services that will help growth in the future."

The Deloitte report highlights 20 growth markets that it believes will account for a growing portion of global GDP. From 30pc of a global economy worth £70 trillion in 2011, to 35pc of a world economy worth £101tn by 2020, these markets will continue to exhibit strong growth.

However, at the same time they will see rapid urbanisation resulting in more than 300 cities with more than 1m people by the end of the decade compared to 232 such cities in 2010. There will also be an explosion in the middle class populations of these countries. There will be more than 2bn middle class households in Asia alone - with more than 1bn in China and India - representing more than 25 times the entire UK population.

"These rising aspirations of the middle classes and the dynamic nature of these markets, is creating a need for complex solutions. These complex solutions require significant knowledge intensive capabilities," the Deloitte report says.

At the moment these 20 growth markets account for only 16pc of the UK's trade while the US and Europe remain its main trading partners.

The largest 100 companies based in the UK generate 70pc of their revenues from the US and the European Union.

However, the UK should be one of the mature, low growth economies that benefits most from the way growth markets are changing. The OECD ranks the UK fourth in the world for its knowledge intensive capabilities relative to its GDP which is significantly ahead of the average for emerging markets.

Specifically, UK companies have strong positions in business and professional services, education, health services, medical equipment and pharmaceuticals which will be in high demand from growth economies as they urbanise and their populations aspire to higher standards of living. Such value added, knowledge-based industries make up 40pc of UK GDP compared to the world average of 30pc.

"The mature economies' knowledge intensive companies are ideally placed to provide the sophisticated goods and services that are in demand; but they have not been particularly successful on capitalising on their opportunity," the report concludes.

To succeed UK companies will have to change their export approach, recognising that what works domestically will need remodelling for overseas growth markets that will also require exporting companies to build new networks of local contacts and partners.

"The disconnect between exporting markets such as the UK and growth markets is really around the fact we've had the wrong sort of things to export," said Mr Sproul. "What we now have to export, however, is based on knowledge capabilities which is the sweet spot for the next stage of development in growth markets."